BEFORE THE DEPARTMENT OF REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.25.501, 42.25.511, 42.25.512, 42.25.515, 42.25.1701, 42.25.1706, 42.25.1707, 42.25.1708 and repeal of ARM 42.25.1702, 42.25.1703, 42.25.1704 relating to coal severance

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NOTICE OF PUBLIC HEARING ON PROPOSED AMENDMENT AND REPEAL

 

TO:  All Concerned Persons

 

1.  On November 18, 2009, at 3:00 p.m., a public hearing will be held in the Third Floor Reception Conference Room of the Sam W. Mitchell Building, at Helena, Montana, to consider the amendment and repeal of the above-stated rules.

Individuals planning to attend the hearing shall enter the building through the east doors of the Sam W. Mitchell Building, 125 North Roberts, Helena, Montana.

 

2.  The Department of Revenue will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice.  If you require an accommodation, contact the Department of Revenue no later than 5:00 p.m., November 9, 2009, to advise us of the nature of the accommodation that you need.  Please contact Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-3696; or e-mail [email protected].

 

3.  The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:

 

42.25.501 DEFINITIONS  The following definitions apply to this subchapter:

(1)  "Agreement not at arm's length" is defined as means an agreement between two parties when there are business relationships other than the agreement between the buyer and seller which in the opinion of the department have influenced the sales price.

(2)  "Contract revenue" is defined means as the total receipts or accruals from all sales of coal during the reporting period.

(3)  "Contract sales price" is defined as FOB mine price less production taxes included by the producer in the sales price to pay taxes on production or a price imputed by the department of revenue according to ARM 42.25.512.  "Final destination" means the location where the coal is utilized by the purchaser in any industrial, commercial, or energy conversion process.

(4)  "FOB mine price" is defined as means contract revenue exclusive of all shipping expenses or any other expense incurred by the producer after the coal has been crushed to size and loaded prepared for shipment.

(5)  "Market value" is defined as means an amount determined by multiplying "FOB mine price" of a similar ton of coal, as fixed on the market place, by the number of tons of coal sold.

(6)  "Production taxes" is defined as the resource indemnity trust tax, severance tax, and the gross proceeds tax.  "Third party intermediary" means any individual, corporation, partnership, subsidiary, or other entity which purchases coal on behalf of, or for the benefit of, another party.  Any coal purchased by a third party intermediary is considered to be a purchase by a broker and not a purchaser and is not considered the contract sales price for tax purposes.

 

AUTH: 15-23-108, MCA

IMP: Title 15, Ch. 23, part 7, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.501 to link commonly used terms defined in the gross proceeds rules and the severance tax rules.  Specifically, the changes in definitions 1, 2, 5, and 6 are necessary to bring the rule into conformance with the style of other definitions rules adopted by the department.

            The definition of contract sales price and production taxes are eliminated because the statute has definitions for both.  The definition of final destination is inserted to further clarify what the department means by this term.  The definition of third party intermediary is added to define the term and clarify that a sale to an intermediary does not establish the contract sales price for tax purposes of the coal.

 

42.25.511  DETERMINATION OF CONTRACT SALES PRICE  (1)  The department shall consider the date determine the contract sales price of the coal immediately after the point the coal is loaded for final transportation prepared for shipment to the purchaser, as the time for determining the contract sales price of the coal as defined in 15-35-102, MCA.  To arrive at FOB mine price any shipping or any other expenses incurred after the coal is prepared for shipment may be excluded from the contract revenue.  The contract sales price will be determined by deducting from FOB mine price or a value imputed by the department:

(a)  the allowance for federal, state, and Indian royalties;

(b)  the processing allowance resulting from imputing value according to ARM 42.25.515; and

(c)(b)  the amounts charged to the purchaser to pay taxes on production.

(2) and (3) remain the same.

 

AUTH: 15-23-108, MCA

IMP: 15-23-701, 15-23-702, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.511 to further define the point where the contract sales price as defined in 15-35-102, MCA, is determined.

            The 2009 Legislature enacted Senate Bill 509 (Ch. 433, L. 2009), which clearly defined the term "prepared for shipment".  The term "prepared for shipment" is a term used in the definition of a contract sales price and although the statutory change defines the point at which the contract sales price is determined, the department decided to adopt the same language as found in 15-35-102, MCA into ARM 42.25.511 to eliminate any risk of confusion if different terms were used.

 

42.25.512   IMPUTED VALUATION  (1)  When coal is sold or used under the following circumstances, the The department may impute the value when the coal is sold or used under the following circumstances:

(a)  the operator of a coal mine is using the produced coal in an energy conversion or other manufacturing process; or

(b)  a person sells coal under a contract which is not an arm's length agreement and the transaction price is less than market value;

(c)  the person neglects or refuses to file a statement.

(2) remains the same.

(3)  The department will not impute a value according to (1) (b) unless the price differential is more than 10 cents/ton or 1% of FOB mine price, whichever is greater.

(4)  The department will maintain the confidentiality of all comparable contract data and will use contract data provided by the producer in question whenever possible.

 

AUTH: 15-23-108, MCA

IMP: 15-23-701, 15-23-702, 15-35-107, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.512(1) to bring the rule into conformance with the style of other rules adopted by the department.

            The department is further amending the rule to remove the language in (1)(c) to conform to the changes made by the 2009 Legislature when it enacted Senate Bill 509 (Ch. 433, L. 2009), which struck this language from the law.

            The amendment to (3) is necessary because the department may consider a price differential of less than $.10 per ton or one percent of FOB mine price as a material difference.

            In addition, the department feels in order to provide equitable treatment to the taxpayers a material difference should be reconciled and adjusted.

 

42.25.515  IMPUTED VALUATION FOR REFINED COAL  (1)  For purposes of the coal gross proceeds tax, the department may, or shall at the request of the taxpayer, impute the value of coal which has been refined by drying, cleaning, or other processing designed to improve the quality of the coal.  Refined or refining does not include transportation of the coal from the point of extraction to the point of shipment or to the boiler, nor any normal preparation process leading to shipment of coal.  The imputed value will represent the value of the coal when the coal is prepared for shipment.

(2)  The imputed value of refined coal will approximate market value FOB mine of similar type coal after primary and secondary crushing where drying, cleaning, or other further processing has not occurred.  The FOB mine price of similar type coal means the price of such coal as established by the market place at the time the sale for the refined coal occurs.  The price will reflect the selling price of coal with like characteristics within the region, as determined by spot sales or other methods which reliably reflect the market value of unrefined coal at the time the sale of refined coal occurs.

(a)  Example: Refined coal is sold for $12/ton.  The FOB price of similar type coal where drying, cleaning, or further processing has not occurred is $10/ton.  The imputed value is $10/ton.

 

AUTH: 15-35-111, 15-35-122, MCA

IMP: 15-35-107, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.515 to limit the instances when an imputed value can be used for the coal value.  The statute is clear that the value of the coal should be the contract sales price whenever it is possible to be determined.  The amendments also link the rule language to the statutory changes enacted by Senate Bill 509 (Ch. 433, L. 2009).

            The department is striking the language in the rule that is not consistent to the language adopted by the Legislature in Senate Bill 509 (Ch. 433, L. 2009).  The statutory changes enacted by SB 509 establish a contract sales price after the point of prepared for shipment and the present language in the rule was inconsistent with this statutory change.  Additionally, the implementing cite is being corrected.

 

42.25.1701  DEFINITIONS  The following definitions apply to this subchapter:

(1)  "Agreement not at arm's length" means an agreement between two parties when there are business relationships other than the agreement between the buyer and seller which in the opinion of the department have influenced the sales price.

(2)  "Contract revenue" means the total receipts or accruals from all sales of coal during the reporting period.

(3)  "Final destination" means the location where the coal is utilized by the purchaser in any industrial, commercial, or energy conversion process.

(4)  "FOB mine price" means contract revenue exclusive of all shipping expenses or any other expense incurred by the producer after the coal has been prepared for shipment.

(5)  "Market value" is defined as an amount determined by multiplying "FOB mine price" of a similar ton of coal, as fixed on the market place, by the number of tons of coal sold.

(1)(6)  "Third party intermediary" means any individual, corporation, partnership, subsidiary, or other entity which purchases coal on behalf of, or for the benefit of, another party.  Any coal purchased by a third party intermediary is considered to be a purchase by a broker and not a qualified purchaser and is not considered the contract sales price for tax purposes.  In determining eligibility for the tax credit, if a qualified purchaser purchases coal from a third party intermediary, that purchase will be included in either the base or current consumption level depending when that purchase occurred.  Any partner or joint owner of a coal using facility who purchases coal on behalf of, or for the benefit of, another partner or joint owner of that facility is included in the definition of a third party intermediary. However, this only applies to the partner or joint owner who purchased coal on behalf of, or for the benefit of, another partner or joint owner.

 

AUTH:  15-35-122, MCA

IMP:  15-35-103, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.1701 in order to eliminate redundant language, define commonly used terms, and delete old language regarding a tax credit that is no longer available.   Specifically, the amendments to the rule benefit the taxpayers by linking the terms used in the severance tax rules clearly and consistently with the terms used in the gross proceeds tax rules.

 

42.25.1706  IMPUTED VALUATION FOR REFINED COAL  (1)  For purposes of the coal severance tax, the department may, or shall at the request of the taxpayer, impute the value of coal.  which has been refined by drying, cleaning, or other processing designed to improve the quality of the coal.  Refined or refining does not include transportation of the coal from the point of extraction to the point of shipment or to the boiler, nor any normal preparation process leading to shipment of coal.

(2)  The imputed value of refined coal will approximate market value FOB mine of similar type coal after primary and secondary crushing where drying, cleaning, or other further processing has not occurred.  The FOB mine price of similar type coal is the price of such coal as established by the market price reflecting the selling price of coal with like characteristics within the region, as determined by spot sales or other methods reflecting the market value of unrefined coal at the time the sale of refined coal occurs.  will represent the value of the coal when the coal is prepared for shipment.

(a)  Example:  Refined coal is sold for $12/ton.  The FOB price of similar type coal where drying, cleaning, or further processing has not occurred is $10/ton.  The imputed value is $10/ton.

 

AUTH:  15-35-122, MCA

IMP:  15-35-107, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.1706 to limit the instances when an imputed value can be used for the coal value.  The statute is clear that the value of the coal should be the contract sales price whenever it is possible.  The amendments further link the language more closely with the language contained in the statutes after the enactment of Senate Bill 509 (Ch. 433, L. 2009).

            The department is striking the language in the rule that is not consistent to the language adopted by the Legislature in Senate Bill 509 (Ch. 433, L. 2009).  The statutory changes enacted by Senate Bill 509 (Ch. 433, L. 2009), establish a contract sales price after the point of prepared for shipment.  In addition, the present language in the rule was inconsistent with the statutory changes made by this bill.

 

42.25.1707  DETERMINATION OF CONTRACT SALE PRICE  (1)  The department shall determine the contract sales price of the coal immediately after the point  consider the date the coal is prepared for shipment loaded for final transportation to the purchaser, as defined in 15-35-102, MCA as the time for determining the contract sales price of the coal.  To arrive at FOB mine price any shipping or any other expenses incurred after the coal is prepared for shipment may be excluded from the contract revenue.  The contract sales price will be determined by deducting from FOB mine price or a value imputed by the department:

(a)  the allowance for federal, state, and Indian royalties; and

(b)  the processing allowance resulting from imputing value according to ARM 42.25.515; and

(c)  the amounts charged to the purchaser to pay taxes on production.

(2) and (3) remain the same.

 

AUTH: 15-35-122, MCA

IMP: 15-35-103, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.1707 to further define the point where the contract sales price as defined in 15-35-102, MCA is determined.

            The 2009 Legislature enacted Senate Bill 509 (Ch. 433, L. 2009), which clearly defined the term "prepared for shipment".  The term "prepared for shipment" is a term used in the definition of a contract sales price and although the statutory change very clearly defines the point in which the contract sales price is determined, the department decided to adopt the same language as found in 15-35-102, MCA, into ARM 42.25.1707 to eliminate any risk of confusion if different terms were used.

 

            42.25.1708 IMPUTED VALUATION  (1)  The department may impute the value when coal is sold or used under the following circumstances:

(a)  the operator of a coal mine is using the produced coal in an energy conversion or other manufacturing process; or

(b)  a person sells coal under a contract that is not an arm's length agreement, and the transaction price is less than market value; or

(c)  the person neglects or refuses to file a statement.

(2)  Market value means the FOB mine price of a similar ton of coal, as established by the marketplace.  The department will consider market value to mean the FOB mine price of a similar ton of coal, as established by the marketplace.  In determining said FOB mine prices, the department will consider the contract term, tonnage, quality, Btu rating, and any other appropriate comparability criteria.

(3)  The department will not impute a value according to (1) (b) unless the price differential is more than 10 cents/ton or 1% of FOB mine price, whichever is higher maintain the confidentiality of all comparable contract data and will use contract data provided by the producer in question whenever possible.

(4)  Contract data provided by the producer in question will be used whenever possible.

 

AUTH: 15-35-122, MCA

IMP: 15-35-107, MCA

 

            REASONABLE NECESSITY:  The department is proposing to amend ARM 42.25.1708 to remove the language in (1)(c) to conform to the changes made by the 2009 Legislature when it enacted Senate Bill 509 (Ch. 433, L. 2009), when it struck this language in the law.

            The department is further amending (2) to assist the taxpayers by bringing the rule into conformance with the style of other rules adopted by the department.

            The amendment to (3) is necessary because the department may consider a price differential of less than $.10 per ton or one percent of FOB mine price as a material difference.  In addition, the department feels in order to provide equitable treatment to the taxpayers a material difference should be reconciled and adjusted.

            The department is further amending the rule in (3) to assure the taxpayer that if they submit contract data to the department, it will be held in confidence.

 

4.  The department proposes to repeal the following rules:

 

42.25.1702  BASE CONSUMPTION LEVEL DETERMINATION – JOINTLY OWNED FACILITIES which can be found on page 42-2579 of the Administrative Rules of Montana.

 

AUTH: 15-35-122, MCA

IMP:  15-35-102, MCA

 

            REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.25.1702 because the language relates to a nonexisting credit.

 

42.25.1703  BASE CONSUMPTION LEVEL – SALE OF INTEREST which can be found on page 42-2579 of the Administrative Rules of Montana.

 

AUTH:  15-35-122, MCA

IMP:  15-35-102, MCA

 

            REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.25.1703 because the language relates to a nonexisting credit.

 

42.25.1704  ELIGILIBILITY FOR TAX CREDIT which can be found on page 42-2580 of the Administrative Rules of Montana.

 

AUTH:  15-35-122, MCA

IMP:  15-35-202, MCA

 

            REASONABLE NECESSITY:  The department is proposing to repeal ARM 42.25.1704 because the language relates to a nonexisting credit.

 

5.  Concerned persons may submit their data, views, or arguments, either orally or in writing, at the hearing.  Written data, views, or arguments may also be submitted to: Cleo Anderson, Department of Revenue, Director's Office, P.O. Box 7701, Helena, Montana 59604-7701; telephone (406) 444-5828; fax (406) 444-3696; or e-mail [email protected] and must be received no later than November 30, 2009.

 

6.  Cleo Anderson, Department of Revenue, Director's Office, has been designated to preside over and conduct the hearing.

 

7.  An electronic copy of this Notice of Public Hearing is available through the department's site on the World Wide Web at www.mt.gov/revenue, under "for your reference"; "DOR administrative rules"; and "upcoming events and proposed rule changes."  The department strives to make the electronic copy of this Notice of Public Hearing conform to the official version of the Notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the Notice and the electronic version of the Notice, only the official printed text will be considered.  In addition, although the department strives to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.

 

8.  The Department of Revenue maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency.  Persons who wish to have their name added to the list shall make a written request, which includes the name and e-mail or mailing address of the person to receive notices and specifies that the person wishes to receive notices regarding particular subject matter or matters.  Notices will be sent by e-mail unless a mailing preference is noted in the request.  Such written request may be mailed or delivered to the person in 5 above or faxed to the office at (406) 444-3696, or may be made by completing a request form at any rules hearing held by the Department of Revenue.

 

9.  The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled.  The primary bill sponsor, Senator Kelly Gebhardt, was contacted on June 23, 2009, by regular mail.

 

 

/s/ Cleo Anderson                             /s/ Dan R. Bucks

CLEO ANDERSON                          DAN R. BUCKS

Rule Reviewer                                   Director of Revenue

 

Certified to Secretary of State October 19, 2009